COMMISSIONER INLAND REVENUE, FAISALABAD VS NAGRA SPINNING MILLS (PVT.) LTD., FAISALABAD
2019 P T D 257
[Lahore High Court]
Before Abid Aziz Sheikh and Faisal Zaman Khan, JJ
COMMISSIONER INLAND REVENUE, FAISALABAD
Versus
Messrs NAGRA SPINNING MILLS (PVT.) LTD., FAISALABAD
Sales Tax Reference Application No.121 of 2016, heard on 26/09/2018.
Sales Tax Act (VII of 1990)---
----Ss. 73, 3, 8A & 7---Sales tax liability, determination of---Input tax adjustment---Sales tax transactions not admissible---Blacklisted suppliers---Blacklisting of suppliers subsequent to transaction with taxpayer---Scope---Once blacklisting order was set aside by Appellate Tribunal, the same could not be pressed into service and subsequent blacklisting did not invalidate invoices issued at a time when a supplier was active and duly registered---Once it was established that a supplier was not blacklisted, then there existed no justification to deny input tax adjustment against invoices issued by such suppler.
Commissioner Inland Revenue v. Tariq Poly Pack (Pvt.) Ltd. 2015 PTD 2256; Commissioner Inland Revenue v. Messrs Amtex Ltd. 2016 PTD 467 and Commissioner Inland Revenue v. Rana Riasat Tufail and others 2014 PTD 1530 rel.
Mrs. Kausar Parveen for Applicant.
Khubaib Ahmad for Respondent.
Date of hearing: 26th September, 2018.
JUDGMENT
ABID AZIZ SHEIKH, J.---This judgment will also decide STRs Nos.122/2016, 123/2016 and 124/2016 as all these reference applications are filed under section 47 of the Sales Tax Act, 1990 ("Act"), against the same impugned order dated 08.03.2016 ("Impugned Order") passed by the learned appellate Tribunal Inland Revenue Lahore ("Tribunal").
2.The following common questions of law are asserted to have arisen in all these reference applications:--
(a)Whether the learned Appellate Tribunal Inland Revenue has erred in law to pass the impugned non-speaking judgment against record and law applicable thereon?
(b)Whether the learned appellate Tribunal Inland Revenue has failed to appreciate that the alleged black listed supplier has not made any taxable supply and only made a paper transaction and also not produced any evidence of taxable supply and thus violated the provisions of section 8(1)(d) of the Sales Tax Act, 1990?
(c)Whether the learned Appellate Tribunal Inland Revenue has failed to appreciate the provision of section 8-A of the Sales Tax Act, 1990 which define joint and several liability of registered person in supply chain where tax unpaid?
(d)Whether the learned Appellate Tribunal Inland Revenue has failed to appreciate the provision of section 21(3) of the Sales Tax Act, 1990 as the said provisions explicitly define that during the period of suspension of registration invoices issued by black listed supplier are not admissible for input tax credit or refund, whether invoices issued by such supplier prior or after such blacklisting read with Chapter V of Sales Tax Rules, 2006 issued vide S.R.O. 555(I)/2006 dated 05.06.2006?
(e)Whether the learned Appellate Tribunal Inland Revenue has failed to appreciate the provisions of section 21(4) of the Sales Tax Act, 1990, as the said provisions explicitly define that whether the Board or concern commission has reason to believe that registered person is engaged in issuing fake flying invoices or claiming fraudulent input tax refund does not physically exist or conduct actual business or committing any other fraudulent actively, the board of concerned commissioner or any other officer after recording reasons in writing block the refund or input tax adjustment read with Chapter V of the Sales Tax Rules, 2006 issued vide S.R.O. 555(I)/2006 dated 05.06.2006?
(f)Whether the learned Appellate Tribunal has failed to interpret the provisions of subsections 2(14) and 2(37) of section 2 of the Sales Tax Act, 1990 as the said provisions define "input tax" and "tax fraud"?
(g)Whether the learned Appellate Tribunal Inland Revenue has exceeded the jurisdiction and failed to appreciate the alleged allegation enumerated in the show-cause notice and decided the cases with different scenario/angle?
(h)Whether on the facts and in the circumstances of the case, the learned Appellate Tribunal Inland Revenue has failed to appreciate that the respondent has violated the provisions of sections 3, 6, 7, 8, 8A, (1)(d), 10, 22, 22(e), 23, 26 read with sections 2(14), 2(3), (11) (3), 33 and 34 read with Chapter V of Sales Tax Rules, 2006 issued vide S.R.O. 555(I)/2006 dated 05.06.2006?
3.The facts in all these reference applications are similar, however for convenience, these facts are briefly narrated separately as under:--
(I)In Reference Application No.121/2016, facts are that respondent received refund of input tax worth Rs.94,986/- pertaining to the tax period July 2010 to February 2012 on the strength of invoices issued by Messrs Abdullah Plastic and Messrs Atif Asif Plastic Factory, whose registration was allegedly suspended/ blacklisted. Based on the above suspension/blacklisting, the input tax adjustment was denied through show-cause notice which was culminated into passing of order dated 03.12.2013 by the Commissioner Appeal. However learned Tribunal allowed the appeal of respondent through impugned order, hence this reference application by the department."
(II)In S.T.R. No.124/2016, the respondent received input tax adjustment of Rs.1,26,800/- pertaining to tax period February, 2010 to June 2010 on the strength of invoices issued by Messrs Abdullah Plastic whose registration was allegedly suspended. Based on the said suspension/blacklisting, the input tax adjustment was denied. However, the learned Tribunal finally allowed the appeal of the respondent, hence this reference application.
(III)In STR No.123/2016, the facts are that during scrutiny of sales tax returns filed by the respondent for the period from July 2011 to February 2013, it was observed that respondent shown zero rated supplies of textile goods to registered persons. However cross matching of sales tax returns data with the buyers returns, had revealed certain discrepancies and buyers were also not found active and operative. In certain cases suppliers were also found not suspended/ blacklisted, hence the order-in-original was passed against the respondent, which was upheld by the Commissioner Appeal. However, learned Tribunal set aside the order of the Commissioner Appeal and allowed the appeal of the respondent, which resulted in this reference application."
(IV)Similarly in S.T.R. No.122/2016, the respondent received refund tax of Rs.9,43,637/- pertaining to tax period July 2005 to May 2010 on strength of invoices issued by Messrs Hasnain Brothers whose registration was allegedly suspended/blacklisted. Based on above said omissions, the adjudication proceedings were initiated against the respondent under section 11(3) of the Act, which culminated into order-in-original and order in appeal by the Commissioner Appeal against the respondent. However, through impugned order, the learned Tribunal allowed the appeal, hence this reference application."
4.Learned counsel for the petitioner argued that there were serious allegations of tax fraud against the respondent, therefore, learned Tribunal could not set aside order-in-original as well as order passed by Commissioner Appeal. She further submits that the learned Tribunal being last fact finding forum has failed to appreciate the relevant facts of the case.
5.Learned counsel for the respondent on the other hand submits that the order passed by the learned Tribunal is based on facts and no question of law is arising out of impugned order, therefore, these reference applications are liable to be dismissed.
6.We have heard learned counsel for the parties and perused the record. The issue involved in Reference Applications Nos.121 and 124/2016 is identical, where input tax adjustment was denied on the ground that invoices were issued by the suspended and blacklisted units. Learned Tribunal as a matter of fact held that one of the supplier of the respondent (Messrs Abdullah Plastic) was blacklisted, however, it filed appeal before appellate Tribunal under section 46 of the Act, and the order of its black listing was set aside by the learned Tribunal. It was in these circumstances held by Tribunal that the blacklisting order was no more in the field and could not be pressed into service for disallowing the input tax against the invoices issued by the said supplier. It was further observed that the other supplier (Messrs Atif Asif Plastic Factory) was not suspended/blacklisted, however, it was subsequently blacklisted on 03.07.2013. We agree with the above findings of learned Tribunal that once the black listing order was set aside by Tribunal the same could not be pressed into service. Further we also agree that subsequent blacklisting does not invalidate the invoices issued at the time when the supplier was active and duly registered. The same view was also expressed by this Court in Commissioner Inland Revenue v. Tariq Poly Pack (Pvt.) Ltd. (2015 PTD 2256) and Commissioner Inland Revenue v. Messrs Amtex Ltd. (2016 PTD 467) and Commissioner Inland Revenue v. Rana Riasat Tufail and others (2014 PTD 1530). Therefore, findings of learned Tribunal in S.T.Rs. Nos.121 and 124 of 2016 are unexceptionable.
7.Now coming to S.T.R. No.122/2016. In said case the main allegation against the respondent was that it claimed input tax adjustment on the strength of invoices issued by Messrs Hasnain Brothers whose registration was suspended and it was blacklisted. Perusal, of impugned order shows that after going through the record, learned Tribunal found that the alleged supplier Messrs Hasnain Brother is still operative and showing normal tax profile 100% in compliance at e-portal of Federal Board of Revenue ("FBR") as per its computer profile dated 27.01.2016. Based on this facts, it was observed that invoices issued by Messrs Hasnain Brothers could not be held invalidated on the ground that the supplier was blacklisted. This finding of the learned Tribunal is based on facts and does not constitute any question of law. Once it is found that the supplier was not blacklisted, there was no justification to deny input tax adjustment against invoices issued by the said supplier. Therefore, we agree with the learned counsel for the respondent that no question of law is arising out of these findings of the learned Tribunal in S.T.R. No.122/2016.
8.Finally in S.T.R. No.123 of 2016, the main allegation against the respondent was that it made zero rated supplies of textile goods to the registered persons, however, according to matching of sales tax returns with his buyers revealed certain discrepancies and in some cases, the buyers were also not active and were suspended/blacklisted. The relevant part of learned Tribunal's impugned order relating to above allegations is reproduced as under:--
"We have no hesitation in our mind to hold that supply of goods being notified textile goods squarely falling in five major zero-rated sectors, was chargeable to sales tax at zero percent under impugned notifications dated 01.04.2011 and 31.12.2011 as it was found made to registered persons only particularly when payments in its respect had also been received through banking channel as required under section 73 of the Act. The benefit of Notifications No.S.R.O. 1125(I)/2011 dated 31.12.2011 applicable w.e.f. 1st January 2012, was available to the persons "doing business in textiles and articles thereof (including jute), carpets, leather, sports and surgical goods sectors" and "are registered as manufacturer, importer, exporter or wholesaler under the Sales Tax Act, 1990" and "appear on Active Taxpayer List (ATL) on the website of Federal Board of Revenue".
As such, pre-requisite for availing benefit of zero-rating under the said notification, three conditions for the qualifying person to be fulfilled are (i) doing business in five major zero-rated sectors, (ii) registered under the Act as manufacturer, imported, exporter or wholesales, (iii) appearing as an active person at 'ATL'. All these conditions as mentioned supra have duly been met with by the appellant as the persons to whom supplies had been made, were obviously doing business in five notified major zero-rated sectors inter alia including textiles and textile articles thereof and were registered under the Act and both the appellant and its buyer at the time of transactions were also appearing as active persons at ATL and any default whatsoever on the part of the buyers cannot be made basis for creating huge liability on account of output tax against the appellant."
9.It is admitted position between the parties that respondent is in the business of textile, hence was entitled for zero rating of sales tax under S.R.O. 1125(I)/2011, dated 31.12.2011. The supplies made by the respondent were of zero rating under the aforesaid SRO and the learned Tribunal as a matter of fact held the buyers of respondent were also active at the time of transactions. In the circumstances, the zero rating facility could not be denied to the respondent. These findings of the learned Tribunal are based on law and also justified in the circumstances of the present case.
10.In view of above discussion, all questions raised above are answered against the applicant department and in favour of the respondent. Resultantly these reference applications are dismissed with no order as to cost.
KMZ/C-6/LReference dismissed.